Behavioral Finance

High Comedy

By, 07/24/2007

Maybe you'd expect us to talk about today's "big" down day in the markets. After all, the S&P 500 shed nearly 2% and the MSCI World almost 1.5%. But MarketMinder readers know very well days like this happen all time within a the broader scope of a bull market. It's quite normal volatility. We'd rather tell some jokes today instead. Here's one:

Q: Why is the fall in the stock market not so bad?
A: It won't be so hard to keep up with the Dow Joneses!

HA! That's hilarious, isn't it? Ok, maybe that wasn't the greatest joke, but how about this one?

Q: Why did the market economist cross the road?
A: To reach the consensus forecast!

Sigh. It seems investing comedy can be about as dry as the subject itself. Neither philosopher nor comedian has ever come up with a good theory of comedy—what truly makes us laugh. But we think this much is true: comedy reveals the paradox and absurdity of life as we live it. It rends the fabric of our beliefs and perspectives and makes us see what a silly world it is after all.

The comedic impulse is a great thing for a successful investor to have. MarketMinder readers know we call the stock market "The Great Humiliator" (T.G.H. for short). No matter how good you are, you're still wrong a lot when you invest in stocks. Heck, just being right 60% of the time gets you all-time all-star status in the investing world. Most people, even pros, can't get it right more than 50% of the time.

With all that wrongness, you're going to need a sense of humor. But comedy in investing is about a lot more than that. Knowing that you're going to be wrong a lot is a fundamental reason to be properly diversified across geographical regions and economic sectors.

Another good one is to follow the proportions and weights of a benchmark—usually a well constructed index like the MSCI World Index or something similar. When you benchmark, you align your portfolio with the market—and only take bets on those places you feel very strongly you have some information others don't. With everything else, a simple market weight will suffice. That way, when the joke's on you, the market will be laughing with you, not at you.

But good comedic investing prowess isn't just about humility and being wrong. You've also got to perpetually ask yourself if what you believe is false. Investors rarely do this. Take a stroll down our Data Center section of MarketMinder and you'll find an empirical debunking of all sorts of commonly believed things from the health of US consumers to stocks' current relative cheapness.

(Alright, we can't resist another…)

Q: How many neo-classical economists does it take to change a light bulb?
A: It depends on the wage rate!

We know a lot of what investors believe is false. We'd be willing to bet you even think comedy is about jokes and laughter, too. Nope!

Comedy was originally a genre of drama and literature, just like epic or tragedy. The Greek playwrights wrote comedies to highlight absurdity with sharp social satire. Generally, comedy contains variations on the elements of surprise, incongruity, conflict, repetitiveness, and opposites. Simply recognizing the myriad ways investors deal with these things is funny enough, but also provides insight if you want to know something others don't.

But classical comedy is also about experience. Numerous episodes of Chaucer's Canterbury Tales, for instance, are referred to as comedy and Dante even used the word in the title of The Divine Comedy. (And we assure you, there is very little laughter in that journey of epic toil!)

Comedy isn't just about jokes. A good investor sees through the absurdities of many common beliefs, always knows they could be wrong and thus diversifies and benchmarks properly, and learns from their experiences. It's probably best to take our commentaries with a light heart anyway…

Q: Why is advice so cheap?
A: Because supply always exceeds demand!


Each hilarious investing/economics joke obtained from:

Jokes.Net Business and Investing Jokes: Economics and Economist Jokes

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

Click here to rate this article:

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


Get a weekly roundup of our market insights.Sign up for the MarketMinder email newsletter. Learn more.